Inquiry investigates smell of a dead cat

A FRISSON of anticipation rippled through the packed hearing room at the Independent Commission Against Corruption in Sydney as the public gallery and hordes of lawyers waited for a covertly recorded telephone call to be played. Sitting in the loneliest place in the room - the witness box - was investment banker Richard ''Digger'' Poole. According to those who have been there, the seconds pass with infuriating slowness. Poole's cufflinks gleamed as he sipped from a glass of water, waiting for the dreaded tape to begin.

''Jonesy?'' said Poole on the phone to his mate, wheeler and dealer Greg Jones.

''Yeah, hang on a minute,'' replied Jones. ''Can I have two poached eggs and some bacon? Thank you, and toast, thank you.''

The ''best show in town'', with its cliffhangers, colourful witnesses and allegations of outlandish corruption, has flashes of the mundanity of everyday life, even for those in the fast lane. One wit took to twitter with: ''Eggs, bacon and a lazy $30m payment on the side, please waiter.''

The $30 million ''on the side'' being a reference to the payment the family of New South Wales ALP kingpin Eddie Obeid received for their share in Cascade Coal, which won what is now alleged to have been a rigged government tender for a coal exploration licence.

For the past six weeks, NSW has been riveted by the corruption inquiry, with its passing parade of the rich and powerful having their moment in the sun as the commission examines what has been described as the biggest corruption scandal since the Rum Corps.

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The central figures, who have yet to give evidence, are Obeid, a former Labor resources minister, and his five sons, who are referred to collectively as ''the boys''.

The alleged corruption happened during the final few years of the then Labor state government that was tossed out in the March 2011 election by Barry O'Farrell's Liberal-National Coalition.

It has been suggested that in 2008 the Obeid family obtained inside information from Ian ''Sir Lunchalot'' Macdonald, the then resources minister. This information allowed the Obeids and their associates to buy several properties in the Bylong Valley, near Mount Penny, in advance of a government tender for a coal exploration licence.

The shrewd Obeids were in a powerful bargaining position. Any mining company that wanted to operate an open-cut mine would need to come to some agreement with the landowners to allow access to their properties. In the past, landowners had waged lengthy battles both in court and by locking their gates.

When a consortium of minister Macdonald's other friends, including mining magnates Travers Duncan and Brian Flannery, and their mutual lunching mate Greg Jones, won what has now been alleged to be a rigged tender for the Mount Penny licence, there were the Obeids waiting to negotiate. It was to be a win-win for everyone.

Having extracted a promise of four times the value of the three properties, the Obeids also negotiated a 25 per cent stake in Cascade Coal. Cascade was the private company set up by ''the Magnificent Seven'' - Brian Flannery, Travers Duncan, former Baker & McKenzie partners John McGuigan and John Atkinson, banker Richard Poole and former RAMS Home Loans founder John ''Kingy'' Kinghorn.

The seventh member of the consortium was the hidden - mate to all - Greg Jones. ''I know him as well as I know my wife,'' growled the quarrelsome Kinghorn in the witness box. It was suggested to Kinghorn that he had been holding Cascade shares for his friend ''because it was understood that Greg Jones' personal friendship with Ian Macdonald could make public knowledge of that embarrassing''.

Kinghorn went ballistic. ''Utter, utter tripe,'' he spat out. For good measure he suggested he might march counsel assisting Geoffrey Watson, SC, down to the ''Law Council'' at a later date for fabricating allegations against good folk such as himself. ''Last week, my granddaughter came home from school crying because Grandpa's going to go to jail,'' he blustered, adding that he had never held shares for Jones because of the worry about Jones' friendship with the minister.

Watson then revealed it was Jones who had told the ICAC in camera that Kinghorn had held Cascade shares for him ''because of my previous relationship with the minister, Ian Macdonald''.

Kinghorn still wasn't having a bar of this and muttered: ''In my opinion that's not correct.''

The inquiry has heard that the big payday was going to come in early 2011 when Cascade generously offered to share the spoils of its mining licence - for which it had paid only $1 million - by selling its only asset, the Mount Penny licence, to the the stock-exchange listed White Energy. The inquiry has heard that the White Energy directors included Kinghorn, Duncan, Atkinson, McGuigan and Flannery, who each stood to make between $50 million and $60 million from the sale of their company Cascade to White Energy.

But there was still one problem: the Obeids. If word got out that the family of the Labor MP had an interest in Cascade Coal, which had won a Labor government tender, it was likely the newly elected Liberal government would hold an inquiry and more than likely cancel the tender. That would make the whole deal worthless and White's shareholders might have grounds to launch a class action against the board, a solicitor told the inquiry.

The Obeids initially tried to extract $100 million to exit Cascade before settling on $60 million. The initial payment of $30 million to the Obeids was cleverly disguised using a series of front companies. But despite their exit, the Obeids' involvement would still not have been good news. As Kinghorn so eloquently put it: ''Think of them [the Obeids] as a dead cat. The dead cat's gone but the smell is still around.''

When both the stock exchange and White Energy's independent directors started asking questions, the inquiry has heard that none of the five White energy directors chose to reveal their knowledge of the Obeids. The inquiry has been told by several directors it was because they were not asked.

The much-anticipated appearance of the key players in this inquiry will occur in the days following January 21, when the inquiry resumes. Still to be called are McGuigan (Cascade Coal/White Energy), Jones, former ministers Macdonald and Obeid, and Obeid's five sons, Damien, Paul, Gerard, Moses and Eddie jnr.

Interestingly, the barristers for ''the boys'' have not asked a single question of any witness during the inquiry, which Commissioner David Ipp said might lead him to find that they had accepted what various witnesses had said about them.

Contrast this to Stuart Littlemore, QC, who is representing the patriarch of the Obeid clan. At every opportunity, Littlemore has distanced his client from the collective noun the ''Obeids'' and even claimed the word the ''dad'' in a phone intercept was really ''dah''.

Exactly what Ipp makes of all of the evidence before him won't be known until late next year. The commission can make findings of corruption against individuals but it has no powers to prosecute. Instead, the Director of Public Prosecutions reviews the material and available evidence and decides whether to lay criminal charges.

This can prove difficult since most witnesses elect to given evidence under a section of the ICAC Act that prevents their evidence from being used against them in other jurisdictions.

While not commenting on whether any charges will flow from this inquiry, legal experts have said the DPP might look at the common law offence of ''misconduct in public office'', an offence that has been prosecuted rarely in Australian courts.

Also, under the Corporations Act, a director of a company who deliberately provides false or misleading information or fails to disclose important information to regulatory authorities such as the Australian Securities and Investments Commission or the Australian Stock Exchange may face criminal charges. The maximum fine is $220,000 or imprisonment for five years.

Minter Ellison's Bob Austin, a former Supreme Court judge, is an expert in corporate law. While insisting that he is not in a position to comment on matters before the ICAC inquiry, he has explained one point of law that may become relevant. ''It is a mistake for directors to assume that if they appoint a board committee to handle a transaction, their duties in respect of that transaction evaporate.'' Directors still had an obligation to disclose to the decision-makers any material information that is in their possession, he said.

When Fairfax Media contacted ASIC this week about whether it was investigating any of the allegations raised in the current ICAC inquiry, a spokesman replied: ''Obviously we read the papers but other than that we have no comment.''